Trafigura sees earnings rise but margins fall on low oil volatility

Trafigura logo is pictured in the company entrance in Geneva, Switzerland March 11, 2012. REUTERS/Denis Balibouse/File Photo

LONDON (Reuters) - Swiss commodity trader Trafigura reported on Wednesday a 12 percent increase in core earnings on the back of higher turnover but also a fall in profit margins due to a lack of volatility in oil markets since the end of 2016.

Trafigura, which rivals Glencore as the world’s second largest oil trader, said its first half core earnings or EBITDA rose 12 percent to $921.4 million (714.3 million pounds), while gross profit increased 6 percent to $1.238 billion, helped by better revenues in the metals unit. Revenues grew 53 percent to $67.317 billion.

Trafigura reports results on an October-October basis, so the first half results reflect its performance from October to March, when oil markets saw record low volatility.

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The firm said its gross profit margin stood at 1.8 percent versus 2.7 percent in the first six months of 2016 due to “low levels of realised volatility, with prices largely range-bound from December”.

“This reduced profitable opportunities for trading,” it said, adding that gross profit from oil trading fell by 17 percent from the first half of 2016 to $652 million.

Gross profit and margins in oil fell despite total volumes in oil trading rising by 25 percent from the period a year earlier to an average of 4.995 million barrels per day, broadly on a par with Glencore and only behind the world’s top oil trader Vitol.

“We expect our daily average volume traded for the full 2017 financial year to exceed 5 million barrels per day, compared to 2016 daily average volume of 4.3 million barrels,” Trafigura said, citing its rising role in exporting U.S. shale crude and increasing sales to China and India.

Trafigura also said it saw a 37 percent rise in metals and minerals volumes in the first half. As a result, gross profit in the metals division rose by more than 50 percent to $586 million.

It said the market showed signs of supply tightness in zinc and copper concentrates while refined metals saw a sharp expansion in demand, with aluminium a particularly strong performer.

In coal, Chinese supply curbs stimulated new import flows, for example from Indonesia, Australia and South Africa, while the iron ore market also showed new signs of life, Trafigura added in its report.

“We were able to expand overall trading volumes and gross profit, with refined non-ferrous metals, coal and iron ore all showing strong tonnage growth and non-ferrous concentrates maintaining leading market positions without sacrificing margins,” it said.